SAS Scandinavian Airlines reportedly close to bankruptcy: local media

SAS Scandinavian Airlines is reportedly close to bankruptcy with staff set to be advised to take salary cuts or risk losing their jobs, according to reports by The Local Sweden, Expressen, Dagens Industri and YLE. Danish, Norwegian and Swedish governments reportedly sought EU approval for state guarantees to secure an extension to a EUR550 million credit facility with six banks including Nordea, SEB, Swedbank, Danske Bank, DNB, and Royal Bank of Scotland. EU competition and state aid spokesman Antoine Colombani said it has had informal contact with the Scandinavian governments but has not received a formal request to permit state aid. Mr Colombani said, “Of course, any state aid must be notified through and approved by the European Commission. Once we receive a notification of course we will examine what these governments want to do, but I cannot give you any indication on timing at this stage.” SAS, which currently employs approximately 20,000 staff, is to release its interim report on 12-Nov-2012.

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After improving its underlying profit in FY2015 and narrowing its losses in the seasonally weak 1Q2016, SAS suffered a widening of losses in 2Q2016. This was the first year-on-year deterioration in its underlying result for six quarters. It benefited from lower fuel prices and from its own cost savings programme, but experienced plummeting unit revenue.

This reflects the ongoing growth of LCC competition in short haul markets, but is also the result of its own capacity increase. SAS' growth is led by rapid expansion on long haul, where Norwegian is also providing LCC competition. SAS is investing in its network and product and growing its revenue from higher-yielding loyalty scheme members, but these measures do not appear to be giving sufficient support to unit revenue.

These trends are unlikely to dissipate any time soon, and there is now the real prospect that its FY2015 result represented a cyclical peak for SAS. The company recognises the need for further change in order to improve its competitiveness. Strategies to seek labour cost reform can be expected, in spite of a strike call by Swedish pilots.

On 2-Dec-2016 the US Department of Transportation (DoT) served an order granting Norwegian Air International (NAI) a foreign air carrier permit, as required by the EU-US open skies agreement, to which Norway is a party. Almost three years after NAI's application it seems that the EU's 30-Nov-2016 filing for arbitration finally panicked the DoT into finalising its tentative approval given eight months ago.

Since launching long haul operations in summer 2013 Norwegian has grown its long haul network to 37 routes operated in 2016. In spite of the delay in receiving the US permit for NAI, 34 of these routes are between cities in Europe and the US. The only Asian destination is Bangkok, linked to the three Scandinavian capitals.

The DoT's final decision means Norwegian can now use its Irish-registered subsidiary NAI to fly long haul routes from Europe to destinations both east and west with the same operating airline, and with EU traffic rights in both directions. This should increase its operational flexibility and cost efficiency and allow lower fares on a greater number of routes. Norwegian already has ambitious long haul growth plans. Expect these now to accelerate further, and not only to the US.